I recently participated in a Southeast Asian investor panel organized by Momentum Works, where the main topic revolved around lessons learned from previous crises and how they can be applied to VC investing during the current pandemic.
As a venture investor who has experienced the global financial crisis (GFC) up close in Southeast Asia, I held the view that we are definitely in better shape during the current situation! This is because we did not even have an active VC market in Southeast Asia back in 2008. As Chua Boon Ping, CEO SPH Ventures, pointed out, the real casualty from GFC in Southeast Asia was the private equity funds.
The other view I hear often is that since the macro-economy is doing so badly, VC investments must be suffering. Unfortunately, I think many investors have confused VC funds with index funds. The latter track, and so rise and fall with the broader economy but VC funds are invested in a select group of upstarts that thrive on disruption, so microeconomics of firms is more relevant to their performance.
To test the hypothesis, I asked our monitoring team to provide an overall review of our active portfolio companies in ASEAN. Based on their analysis, about 55% of our companies have a runway of 1 year or more, and 80% have a runway of 6 months or more. What is more surprising, in terms of the valuation impact for 2020, they are expecting an upside of 9.6% and a potential downside of 8.6%. This seeming disconnect with the macro environment is mainly due to the winners covering up for the losers. Here are some characteristics of potential winners:
So my advice to startups is to ignore the macro doom and focus on the micro boom. Besides cost cutting to ensure you are a survivor, it is also important to look out for new normal opportunities that you can capitalize on so that you can emerge from this crisis as a winner!
PS: Credit to Zuain and her amazing monitoring team for providing the wonderful analysis that made this article possible!